The Relative Effect of Property Type and Country Factors in Reduction of Risk of Internationally Diversified Real Estate Portfolios |
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Authors: | John L Glascock Lynne J Kelly |
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Institution: | (1) Department of Land Economy, University of Cambridge, 19 Silver Street, Cambridge, UK, CB3 9HW;(2) Department of Finance, International Business and Insurance, Howard University, 2600 6th Street NW, Washington, DC 20059, USA |
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Abstract: | We examine and test the merits of diversifying portfolios of real estate securities internationally and across property types.
Our analysis covers the period January 1990 through July 2005. Using data from the Global Property Research GPR 250 Property
Securities Index, which has monthly prices for five property type indexes in 21 countries, we decompose country and property
type sources of variation in real estate security returns. We find that property type effects are smaller than country effects.
Property type specialization explains only 6% of the variance of national real estate securities index returns. Because property
type effects are so small, country diversification is a more effective tool for achieving risk reduction than property type
diversification. In addition, we find evidence that the relative importance of country effects is decreasing while that of
industry effects is increasing. However, country effects continue to dominate property type effects. |
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Keywords: | Real estate Property type categories Stock market returns |
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